While most industries have undergone some sort of major change in order to remain current in the market, insurance is one industry that seems to have ignored the cries of change. However, the relentless nature of technological advancements will eventually catch up with everyone.
When it comes to millennials, a generation reliant on smartphones – the lack of tech-based solutions in any realm of life is simply unheard of. This, coupled with changing attitudes regarding financial matters across all age groups, has led to a marked drop in underwriting in certain areas. For products such as life insurance, sales of individual policies have plummeted by 40% since the 1980s.
In recent years, we have seen some real innovation blooming in InsurTech (life insurance technology). New InsurTech companies offer different paradigms and systems which are transforming the traditional insurance and service processes. For example, Lemonade, an InsurTech startup, has injected technology and transparency into their business model, creating an experience that is fast, affordable and hassle-free. Their service is available online and through IOS or Android apps making it as convenient as possible. Thanks to their innovative business model, they have already raised $60 million in funding.
With these changing attitudes and expectations along with the breakneck speed of innovation, insurance companies must face questions that need swift answers. Their business models, which focus on historical data, often ignore modern technology’s ability to produce data instantly. Even though 74% of insurance companies, recently surveyed by PwC, recognize InsurTech’s potential, the industry seems to be comfortable with the status quo.
So the question arises: Will InsurTech startups sink the old guard, or can insurance giants learn valuable lessons and adopt many of the innovations the field is already producing?
Here are a few notable examples….
The Rise of P2P Insurance
Peer-to-peer insurance has emerged as a potent alternative for prospective policyholders who are dissatisfied with the existing insurer paradigm. P2P insurance seeks to turn the legacy system on its head by tapping into current social interaction trends.
Unlike traditional models, peer networks are designed to create communities of like-minded individuals who then aggregate their premiums into pools used to provide associated coverage. These communities mitigate risk across the network, lower premium payments, and return unused funds to members when the coverage period ends.
The P2P model removes the common conflicts of insurer-client relationships. Whereas customers feel they must fight insurers to access coverage benefits, P2P pools payout with significantly less paperwork, and return any unused premiums at the end of their coverage period.
This may seem like a threat to insurance companies, but it teaches an important lesson. Instead of maintaining what can be construed as an adversarial relationship towards customers, smart insurance providers should look for ways to fast-track their payout and claims processes. By eliminating middlemen or even adopting P2P models, they can improve their standing with consumers.
Another major focus for InsurTech has been on-demand insurance for a variety of verticals. On-demand coverage utilizes smartphones and other mobile devices to switch insurance coverage on or off for specific products in real-time. While insurers have historically charged regular premiums for around-the-clock coverage, clients now insist on options that provide increased flexibility. This on-demand vacuum is rapidly being filled by companies such as Trov and Verifly, which deliver flexible coverage for electronic goods and drones. Comparable products also exist for motor vehicles and home sharing.
For major insurers, this presents a threat, but also an opportunity. The general trend indicates customers want accessible insurance on-demand that is delivered in a swift and uncomplicated manner.
Health Tech, IoT, and Improving Transparency
For decades, the process of acquiring health or life insurance has been lengthy and complicated for consumers. Individuals must often take medical exams, blood tests, and fill out countless forms before receiving approval. However, technology has shifted the paradigm as the Internet of Things, wearable technology, and drone technology supply valuable sources of data for insurers to monitor and glean insights.
Although not created specifically for the insurance industry, these technologies often have great applicability when it comes to assessing risk, determining premiums, and paying out claims. By improving the ways underwriters can analyze data with more instantaneous modeling, insurers can offer greater transparency throughout their processes, which helps build better relationships and improves trust amongst prospective policyholders.
In addition, these technologies can easily be integrated into existing insurance models, potentially shrinking underwriting time significantly. Companies can access real-time data on their customers’ health, driving records, and medical records in minutes instead of days, leading to faster approval times, more accurate risk assessments, and possibly more affordable coverage for customers.
AI and Big Data Analytics Present Challenges and Opportunities
Closely tied to the advent of wearable technology is the challenge of analyzing the massive amounts of data these devices produce. Moreover, insurance companies must wade through hundreds of thousands of documents to fulfill claims, approve or reject applications, and assess risk characteristics of potential customers. While many have implemented systems designed to expedite these processes, adoption of AI and big data analytics could provide insurance providers with enhanced speed and precision.
Many insurers have already prioritized investments in these areas. According to a Capgemini study, nearly 83% of insurers surveyed cited advanced analytics tools as a major focus for their firms. More importantly, 85% have already invested in analytics, while 45% of the industry is expected to invest in AI solutions over the next one to three years.
Startups Need Nimble Partners
Even with the rapid pace of expansion in the InsurTech field, startups require collaboration. While many of their products have been billed as disruptors, most of them could also be developed to fulfill pain-points for existing insurers.
More importantly, startups need space to grow and evolve as their needs change and emerge. This requires partners that are flexible, and willing to work with companies to grow at the pace required. Insurance giants see InsurTech as a rising threat, but research suggests these upstarts should be viewed as a positive opportunity for insurers to learn and innovate existing practices.
Even with the amount of innovation exhibited by these new entrants, traditional insurers remain – for now at least – a more popular solution than even the most intriguing innovative InsurTech solutions. Disruptors are developing strategies addressing areas that have challenged insurance giants for years. By focusing on these areas for collaboration, innovators and insurers can find common ground and improve the industry as a whole. In this way, insurance, often deemed a bland and boring field, could have a very exciting future ahead.